• Business | 11th June, 2012 | Macau | Gambling on Macau – VIDEO
  • As Macau’s concessionaires reach the half-way point of their 20-year gaming license terms, growth begins to slow in the world’s largest gambling market. Taipa island and the Cotai Strip are now bustling with casino life and Macau’s government has put the brakes on increased development.

    The past decade has been a phenomenal success story for gaming since the 40-year monopoly in Macau held by Stanley Ho’s SJM was finally relinquished in 2002. SJM and MGM China subsequently received license extensions until March 2020 and four additional concessions were granted until June 2022.

    MacaoEnter Malaysia-based Galaxy Entertainment, Hong Kong-listed Melco Crown Entertainment and Las Vegas operators LV Sands and Wynn Resorts. Each company has grown rapidly in the 11 square mile city, constantly looking to capitalise on their operator licenses – the golden ticket to riches.

    Gambling-hungry patrons across Asia regularly frequent Macau’s casinos, the only regulated gambling destination in China. A loosening of travel constraints and expanded travel from mainland China has contributed to a boost in the mass market sector.

    Today, there are 35 casinos in Macau with 14 owned by SJM (Sociedade de Jogos de Macau). Investment house CLSA estimates the other licensed operators LV Sands, Galaxy Entertainment, Melco Crown, Wynn Macau and MGM China currently hold an approximate 20, 17, 13.5, 12.5 and 9.5 percent market share respectively.

    Casino floors are continuously filled with players and gambling action day and night. Benefits to the industry have been critical through the economic downtown, as huge profits are re-invested into new casino technology and gaming innovations. Companies worldwide such as IGT, Bally Technologies and TCS John Huxley to name a few, are hugely present throughout the region.

    “The growth of Macau has astonished everyone,” commented Robert Drake, a Las Vegas veteran now CFO of Galaxy Entertainment, “What you need to continue the growth in the market is new differentiated products.”

    But the real action comes from the deep VIP sector, which accounts for approximately 75 percent of Macau’s total gross gaming revenue. Junket operators setup high stakes tables in luxurious back rooms with chip values as much as $100,000. The VIP sector favours table games, especially Baccarat, and the model has been adopted in other jurisdictions including Singapore and even Las Vegas.

    MacaoTo effectively control the growth and neutralise mafia-associated junket systems, the Macau government set a 5,500-table cap on the number of live gaming tables. The cap is set to run through the first quarter of 2013 and growth of new tables set at 3 percent for the next decade.

    Casino operators must continue expansion and diversify away from pure gaming to ensure their license terms are extended past 2022.

    Macau is looking to become a more entertainment-centric tourism hotspot with more hotel rooms and non-gaming amenities.

    Foreign investment into the former Portuguese enclave has helped gambling contribute 70 percent of Macau’s economy, creating hundreds of thousands of jobs and is removing the remnants of prostitution, smuggling and triad associations that would not previously enable Macau to thrive as an international destination.

    Macau has held the global gaming industry up during the uncertain economy in the US and Europe, but eventually running out of steam, saw its first revenue dip since 2009 last month. China’s economy has recently weakened, effecting property values, stock markets and disposable income.

    “I think over time it becomes a more absolute dollar growth argument,” continued Drake, “but if we grow at anywhere near where the analysts say we’ll grow this year, that’s the equivalent of one year of revenue on the Las Vegas strip so the growth may decline over time but the absolute dollar growth will certainly be there.”

    Gaming is still expected to expand in Macau, but analysts believe these first signs of slowing growth rates will see operators face a tougher challenge in the decade ahead. This year’s revenue growth has so far been running at just over half the 2011 rate, before the abrupt slowdown in May.

    According to recent Gaming Inspection and Coordination Bureau figures, year-on-year growth rates have steadily declined in 2012. Gross revenues dropped from 34.8 percent in January, 28.3 percent in February, 27 percent in March, 25.7 percent in April to 7.3 percent in May, which represents revenues of us$3.3 billion last month.

           

    More Information
    SJM: SJMHoldings.com
    MGM China: MGMChinaHoldings.com
    Galaxy Entertainment: GalaxyEntertainment.com
    Melco Crown Entertainment: Melco-Crown.com
    LV Sands: LasVegasSands.com
    Wynn Macau: WynnMacau.com

    Contact reporter Michael Robinson at mrobinson@innovategaming.com
    or +44 (0) 208 144 2578. Follow @innovate_gaming on Twitter.